News Analysis – Is design industry financial performance on the up?

Operating profits for the top 30 design consultancies rose by 85 per cent through 2010, while gross income was up by £27 million, according to a report from accountant Kingston Smith W1.

Kingston Smith W1 says the results in its latest Financial Performance of Marketing Services Annual Survery are ‘a welcome improvement from the dissapointing set of results shown in the previous year’.

Last year the operating profits of the top 30 consultancies were shown to be down by 50 per cent, while gross income fell by £20 million.

In its analysis of this year’s figures, Kingston Smith W1 says, ‘A really promising set of results has shown an increase in operating margins as designers seem to have recovered from the full force of the economic downturn in 2009.

‘The majority of accounts filed for this survey relate to the 2010 financial year ends which implies that the majority of “bad news” was buried in 2009.

‘The design industry has historically been one of the first to suffer in a downturn, which explains why their results in previous surveys have been poor. The challenge for businesses in the next 12 months will be to maintain their levels of profitability during what most of the trade press describe as a potential double-dip recession.’

Kingston Smith W1 says the top 30 design consultancies outperformed the top 50 independent marketing services groups across most areas. This is put down to higher staff productivity and a squeeze on non-staff costs.

Looking at individual consultancies, Sun Branding Solutions saw the largest increase in gross income – up 57 per cent – while Coutts Retail Communications (37 per cent), Elmwood and Interbrand (both 34 per cent) also saw strong increases.

Eight consultancies reported a fall in gross income, with The Team’s dropping by 31 per cent, following a 36 per cent increase the previous year.

Sun Branding Solutions also reported the largest operating profits – at £2.9 million – while The Team saw the largest fall, reporting an operating loss of £798 000.

In terms of operating profit per head, which Kingston Smith W1 describes as ‘perhaps the purest measure of both productivity and profitability’, topping the table was Venture Three, with profit per head of £43 778, followed by The Partners (£34 317) and Lambie-Nairn (£29 359).

The figures show a marked difference between results for group-owned consultancies and for independent designers. While gross income at group-owned consultancies was up by 16 per cent, for independent consultancies the figures was half that – at 6 per cent.

And while group-owned consultancies saw a 14.6 per cent rise in operating margins, for independent groups it was just 6.6 per cent.